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Thanks to the government of India for acknowledging
today that the great advantage of "gold-backed financial
instruments" is not to their purchasers but rather to the government
itself in its campaign to talk Indians out of their gold to reduce the
country's current account deficit.

That is, as the Press Trust of India reports in the
story appended from The Hindu, replacing the investment of the Indian people
in gold with "gold-backed financial instruments" can reduce gold
purchases only insofar as those "gold-backed financial instruments"
don't actually have all the gold that has been sold in their name.

But no thanks to the Indian government for thinking
its people to be so stupid.

"In its mid-year economic analysis tabled in
Parliament on Monday," the PTI story says, "the government said
gold-backed products would help investors enjoy the benefits of investment in
the metal without investing in the physical commodity."

But of course investing in a merely
"gold-backed" product is actually a mechanism for forfeiting
the benefits, by nullifying the price support that otherwise would be given
by one's own investment.

Besides, the Indian government's concern about its
trade deficit seems a bit misplaced. Yes, Indians pay rupees for gold and as
India has little domestic gold mining, the rupee is exported for imports and
becomes weaker and the gold price becomes stronger. But it's not as if India
is poorer by the transaction. To the contrary, India is richer since the
Indian people still have the gold. Those who are poorer are those who
traded gold for rupees.

The real objection of the Indian government here
seems to be that the Indian people have control of the better wealth-preservation
mechanism, the metal, and the government is stuck with the inferior
wealth-preservation mechanism, the rupee.

The solution would seem to be to give the Indian
people what their behavior suggests they want: a gold currency. That would
facilitate what the Indian government claims to want: mobilization of the
vast wealth stored by the Indian people in metal. But of course that would
also risk smashing India's enduring colonial masters in the Western banking
system, who can keep controlling the world only as
long as they control currency creation. Like South Africa, another country
with a lot of gold, India only thinks that it's free.

Attributing the surge in gold imports to the high
current account deficit, the government on Monday said it was considering
schemes such as gold deposits, accumulation plans, gold-linked accounts, and
pension products to curb demand for the precious metal.

In its mid-year economic analysis tabled in
Parliament on Monday, the government said gold-backed products would help
investors enjoy benefits of investment in the metal without investing in the
physical commodity.

"Now gold-backed financial instruments in the
form of modified gold deposits and gold accumulation plans, besides
gold-linked accounts and pension products linked with the precious metal, are
some measures being considered to reduce the attraction of a direct
investment in bullion and jewellery in the domestic
market and check a substantial rise in imports," the review said.

However, gold-linked investments would have to be
monitored to see whether the overall demand for the metal actually falls, it
added.

The Finance Ministry's chief economic adviser, RaghuramRajan, told reporters:
"We are worried about gold imports. It is an unproductive instrument. The
way to curb holding of gold is to create more attractive financial
instruments. Some gold-linked instruments have been talked about by the RBI
but potentially there could be other financial instruments to attract
investment."

The current account deficit has been rising on the
back of record trade deficits, which in October jumped to a 12-year high of
$21 billion on the back of rising oil and gold imports.

"We are worried about the deficit. We want to
take steps to monitor it," Dr. Rajan said.

The Reserve Bank of India has unveiled a slew of
curbs on gold purchases and financing as imports touched a record high last
year, pushing up the current account deficit to a historic high of 4.2 per
cent in the year.

In 2011-12 India's gold imports stood at $60 billion
and the quantum of import was 1,067 tonnes.

A Finance Ministry official said the imports had
shown signs of moderation and that gave the government hope that the deficit
would be lower this fiscal.

In the April-June quarter of the current fiscal,
however, gold imports had contracted by 18.4 per cent year-on-year to Rs.71,912crore ($13 billion).

Gold imports into the country had risen considerably
in the last 3-4 years.* * *

Chris Powell is the secretary of the Gold Anti-Trust Action Committee (GATA) which has been organized to advocate and undertake litigation against illegal collusion to control the price and supply of gold and related financial securities.